According to the draft legislation posted on the website of the Legislative Affairs Office of the State Council, the country's cabinet, for open comments, automakers' sales of NEVs should be equivalent to 8 percent of their sales of traditional energy vehicles in 2018, 10 percent in 2019 and 12 percent in 2020.

Automakers will also be able to trade their surplus credits, said the draft. NEVs include plug-in hybrids, electric cars and fuel cell vehicles.

It also requires oil consumption of passenger vehicles to reach 6 liters per 100 kilometers in 2018, 5.5 liters per 100 kilometers in 2019 and 5.0 liters per 100 kilometers in 2020.

The credit system is expected to greatly promote domestic NEVs' output and technology, experts noted.

Since subsidies for NEVs will be completely phased out by 2020, this new policy can be seen as a substitute measure only in the sense of giving companies more incentives, Jia Xinguang, an expert at the China Automobile Dealers Association, told the Global Times on Monday.

With the rollout of the new policy, the central government aims to promote technology breakthroughs in China's NEV sector by boosting market-oriented reform, he said. "Despite China's global leading position in NEV output, it still lags behind advanced international level in technology, especially power battery performance."

"The credits are given in line with factors involving the vehicles' endurance mileage and comprehensive energy consumption, which will prevent automakers carrying out the improper practice of installing more batteries. In this sense, the new policy benefits technology improvement in this sector," said Cui Dongshu, secretary-general of the China Passenger Car Association.

In addition, selling surplus credits will serve as a new channel of funding for independent auto brands' innovation and help raise the overall profitability of the NEV industry, he said.

However, Jia said it may be very difficult for most automakers to meet the credit requirement of 8 percent in 2018. According to him, only a few companies, such as BYD Company Ltd, will be able to meet the requirement, considering that the output of NEVs in the January-May 2017 period only represents 1.5 percent of passenger vehicles in China.

BYD supports the implementation of the credit system and follows the country's strategy of saving energy and reducing emissions, the company told the Global Times on Tuesday.

The electric car manufacturer aims to achieve the goal of applying its electric vehicles in all sectors including urban traffic, logistics, ports as well as mines.

German car manufacturer Volkswagen China declined to comment on the draft, but said the company is trying its best to lead the electrification of China's car industry.

Both experts forecast that foreign automakers will accelerate expansion in NEV manufacturing in the Chinese market in the coming years to comply with the regulation.

The Ministry of Industry and Information Technology also encouraged domestic automakers to engage in international cooperation, promoting NEV industrialization through the use of international technologies, capital and talent, according to an announcement on improving car investment management posted on the ministry's website on June 13.

This means that foreign companies, which have already established two traditional passenger vehicle joints ventures (JVs) in China, can set up electric car JVs if they get approval, according to Cui.

In a note sent to the Global Times on Monday, Volkswagen China said that the company will produce electric cars with China Anhui Jianghai Automobile Group Co to cope with the fiercely competitive mass market segment. The auto giant plans to produce plug-in hybrids and electric cars in China in the second and third stages of its three-stage NEV strategy for the Chinese market.